Nuclear Waste
Absence of Key Management Reforms on Hanford's Cleanup Project Adds to Challenges of Achieving Cost and Schedule Goals
Gao ID: GAO-04-611 June 9, 2004
The Department of Energy's (DOE) Hanford Site in Washington State houses DOE's largest and most complex nuclear cleanup project--treating and preparing for disposal 55 million gallons of high-level radioactive waste. In 2000, DOE awarded an 11-year, $4.3 billion contract to design, construct, and test treatment facilities at Hanford. GAO was asked to review (1) efforts to accelerate the project's completion, (2) implementation on this project of agencywide management reforms, and (3) the challenges resulting from any unimplemented reforms.
DOE's initial approach called for treating 10 percent of the site's high-level waste by 2018 and for operating the plant until treatment was completed in 2046--well past a regulatory deadline to complete treatment by 2028. In 2002, DOE decided to accelerate cleanup by about 20 years and reduce the project's $56 billion cost by $20 billion. In the short term, however, several factors, including the accelerated approach and contractor performance problems, have lengthened construction time and raised contract costs by $1.4 billion to $5.7 billion. Because of long-standing problems that preceded Hanford's contract, DOE has instituted reforms in both contract and project management. DOE's 2000 Hanford contract implemented the contract performance reforms, including linking contractor fees to cost and schedule performance. The contract did not, however, implement project management reforms, such as an overall plan to accomplish waste treatment by the regulatory deadline. Not implementing project management reforms at the outset has added to the risks in cleaning up Hanford's tank waste. First, to start quickly, DOE committed to a "fast-track" process in which design, technology development, and construction are performed concurrently on different aspects of the project. For projects of Hanford's complexity, this approach is not compatible with controlling costs and schedules. Second, DOE has delayed completing analyses needed to determine the most cost-effective approach to waste separation and may have missed savings opportunities of at least $50 million a year. Third, DOE has not adequately defined or communicated the potential effects of a legal challenge to its overall plan for minimizing how much high-level waste is disposed of in an underground repository. Unless effectively managed, an adverse legal outcome could increase project costs by tens of billions of dollars.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
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GAO-04-611, Nuclear Waste: Absence of Key Management Reforms on Hanford's Cleanup Project Adds to Challenges of Achieving Cost and Schedule Goals
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Report to the Committee on Government Reform, House of Representatives:
June 2004:
NUCLEAR WASTE:
Absence of Key Management Reforms on Hanford's Cleanup Project Adds to
Challenges of Achieving Cost and Schedule Goals:
[Hyperlink, http: //www.gao.gov/cgi-bin/getrpt?GAO-04-611]:
GAO Highlights:
Highlights of GAO-04-611, a report to the Committee on Government
Reform, House of Representatives:
Why GAO Did This Study:
The Department of Energy‘s (DOE) Hanford Site in Washington State
houses DOE‘s largest and most complex nuclear cleanup project”treating
and preparing for disposal 55 million gallons of high-level radioactive
waste. In 2000, DOE awarded an 11-year, $4.3 billion contract to
design, construct, and test treatment facilities at Hanford. GAO was
asked to review (1) efforts to accelerate the project‘s completion,
(2) implementation on this project of agencywide management reforms,
and (3) the challenges resulting from any unimplemented reforms.
What GAO Found:
DOE‘s initial approach called for treating 10 percent of the site‘s
high-level waste by 2018 and for operating the plant until treatment
was completed in 2046”well past a regulatory deadline to complete
treatment by 2028. In 2002, DOE decided to accelerate cleanup by about
20 years and reduce the project‘s $56 billion cost by $20 billion. In
the short term, however, several factors, including the accelerated
approach and contractor performance problems, have lengthened
construction time and raised contract costs by $1.4 billion to $5.7
billion.
Because of long-standing problems that preceded Hanford‘s contract,
DOE has instituted reforms in both contract and project management.
DOE‘s 2000 Hanford contract implemented the contract performance
reforms, including linking contractor fees to cost and schedule
performance. The contract did not, however, implement project
management reforms, such as an overall plan to accomplish waste
treatment by the regulatory deadline.
Not implementing project management reforms at the outset has added to
the risks in cleaning up Hanford‘s tank waste. First, to start quickly,
DOE committed to a ’fast-track“ process in which design, technology
development, and construction are performed concurrently on different
aspects of the project. For projects of Hanford‘s complexity, this
approach is not compatible with controlling costs and schedules.
Second, DOE has delayed completing analyses needed to determine the
most cost-effective approach to waste separation and may have missed
savings opportunities of at least $50 million a year. Third, DOE has
not adequately defined or communicated the potential effects of a
legal challenge to its overall plan for minimizing how much high-level
waste is disposed of in an underground repository. Unless effectively
managed, an adverse legal outcome could increase project costs by tens
of billions of dollars.
High-level Vitrification Plant at Hanford‘s Waste Treatment
Construction Site, March 2004
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that DOE (1) follow more closely its project management
guidance when acquiring complex nuclear waste treatment plants,
especially by avoiding a fast-track, concurrent design-build approach,
and (2) develop and provide to Congress a plan that includes an
estimate of the costs and time frames needed to treat and dispose of
DOE‘s high-level tank wastes if most of these wastes must be disposed
of in an underground high-level waste repository. In commenting on the
report, DOE generally agreed with the recommendations, including
improving its cost estimates, but was unwilling to develop an
alternative treatment plan for high-level waste until the legal issues
are decided. GAO believes that any cost estimate DOE develops should
be based on a specific plan.
www.gao.gov/cgi-bin/getrpt?GAO-04-611.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robin M. Nazzaro at
(202) 512-3841 or nazzaror@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOE Has Revised Its Cleanup Approach to Reduce Costs and Save Time in
the Long Term but Has Increased the Cost of Its Major Construction
Project in the Short Term:
Contract Performance Reforms Were in Place at Start of Project, Project
Management Reforms Were Added Later:
Not Implementing Key Project Management Reforms at Start of the
Construction Project Has Added to DOE's Challenges:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Analysis of DOE's Cost-Saving Estimates:
Appendix III: Comments from the Department of Energy:
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Tables:
Table 1: Key Events in the Hanford Waste Treatment Project:
Table 2: Comparison between DOE's Previous Approach (December 2000) and
Accelerated Approach (August 2002) for Processing Hanford's Tank Waste:
Table 3: GAO Analysis of DOE's Cost-Savings Estimate for the Hanford
Tank Waste Treatment Project:
Figures:
Figure 1: Aerial View of the Waste Treatment Plant, March 2004:
Figure 2: Key Construction Project Dates: DOE's Previous Approach
Compared with Its Accelerated Approach:
Abbreviations:
AEA: Atomic Energy Act of 1954:
AEC: Atomic Energy Commission:
CHG: CH2M Hill Hanford Group:
DOE: Department of Energy:
EPA: Environmental Protection Agency:
ERDA: Energy Research and Development Administration:
NRC: Nuclear Regulatory Commission:
OMB: Office of Management and Budget:
Letter June 10, 2004:
The Honorable Thomas M. Davis:
Chairman:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
The Department of Energy (DOE) spends almost $20 billion a year--about
90 percent of its fiscal year 2003 budget--on contracts, including
those for operating its installations. These operations include
extensive projects for treating and storing radioactive and hazardous
wastes accumulated over more than 50 years of nuclear weapons
production--a task DOE has estimated will cost more than $142 billion
(fiscal year 2003 dollars) and will not be completed until 2035. DOE's
success has been mixed, with some cleanup projects going well but
others producing few or no results after the expenditure of hundreds of
millions of dollars. We and others have criticized DOE for failing to
hold its contractors accountable for results and for inadequate
management and oversight of its projects. In response, starting in the
mid-1990s, DOE undertook two main reform initiatives--both were
designed to improve contractor performance in carrying out major
projects. The contract performance initiative, which DOE formalized in
1996, included ensuring that DOE begins projects by using the
appropriate contract type, encouraging greater competition in contract
bids, and linking contract award fees more closely to contractor
performance. The project management initiative, started in 1999 and
resulting in new management guidance in 2003, required DOE and its
contractors to implement certain management practices, such as
following a more disciplined decision-making process for defining,
planning, and carrying out major projects.
You asked us to review the impact of these management reform efforts at
DOE's largest and most complex cleanup project--the waste treatment
project[Footnote 1] at DOE's Hanford Site in Washington State.
Hanford's waste treatment project involves more than 55 million gallons
of radioactive and hazardous waste--enough to fill an area the size of
a football field to a depth of more than 150 feet--stored in 177
underground tanks. DOE has managed this waste over the years as high-
level waste.[Footnote 2] The overall project involves two major steps:
(1) designing, constructing, and testing a waste treatment
plant[Footnote 3] (the construction project) and (2) operating this
plant and others in subsequent years to process and prepare the tank
waste for permanent disposal (the operations project). In 2000, after
DOE had announced its agencywide contract and project management
reforms, it awarded an 11-year, $4.3 billion contract for the
construction project. In April 2003--as part of a nationwide effort
that DOE started in 2002 to reduce the costs and schedule for cleaning
up many of its sites--DOE revised Hanford's waste treatment project,
accelerating it to help meet a 2028 deadline that the department had
agreed to with Washington State in 1989. Our analysis examines the
interaction of these four separate efforts--the contract performance
initiative, the project management initiative, DOE efforts to
accelerate cleanup at its sites, and the waste treatment project at
Hanford. Specifically, this report examines (1) the DOE accelerated
approach for addressing Hanford's tank waste, including any changes in
the construction project's cost or schedule; (2) the extent to which
DOE's contract and project management reforms have been implemented on
the construction project; and (3) the challenges resulting from any
unimplemented reforms on the potential for completing the waste
treatment project successfully.
This report is based on detailed work we conducted at DOE's Hanford
Site near Richland, Washington, and on our analysis of cost and
schedule information and legal documents pertaining to the waste
treatment project. We also reviewed DOE's contract reform and project
management initiatives, including our prior reports on those
initiatives. To evaluate the technical aspects of the Hanford waste
treatment project, we obtained the assistance of a physicist with
extensive experience in the nuclear field. A detailed discussion of our
scope and methodology appears in appendix I. We conducted our review
from July 2003 through May 2004 in accordance with generally accepted
government auditing standards.
Results in Brief:
DOE's accelerated waste treatment approach calls for significant
changes in treating and disposing of Hanford's tank wastes as a way of
saving both time and money when the waste treatment facilities begin
operation. Under the approach of its December 2000, $4.3 billion
contract with Bechtel National, Inc. (Bechtel National), DOE estimated
that cleaning up the waste would cost about $56 billion and take until
about 2046. The accelerated approach calls for completing waste
treatment by 2028; by reducing cleanup by almost 20 years, DOE
estimates it will save about $20 billion. The accelerated approach came
about 2 years after the construction contractor, operating under the
assumptions of DOE's previous approach, had begun to design, build, and
test the waste treatment plant. DOE increased the contract amount for
the construction project by $1.4 billion, to $5.7 billion, to reflect
the accelerated approach's added production capacity, contractor
performance problems, additional design work, and better estimates. DOE
also lengthened by 16 months the time for designing and building the
plant. To keep the construction project on schedule despite the
increase, however, DOE decided to shorten the commissioning phase--the
period for testing the plant to ensure that it will work properly once
operations begin--by nearly the same amount. As a result, DOE has
maintained its schedule to begin operation of the waste treatment plant
by 2011.
DOE's 2000 contract implemented the department's contract performance
initiative but not its project management initiative. Elements of the
contract initiative in place at the contract's start included ensuring
that a competitive process for bidding the 2000 contract was followed
and paying contractor performance fees on the basis of the cost and
time required to successfully complete the plant. Because it was under
pressure to meet regulatory milestones and keep the project moving
forward, however, DOE awarded the contract without fully implementing
its project management initiative, which the department had developed
but not yet issued in final form. For example, the initiative calls for
developing, at the beginning of a project, an approach that can meet
mission requirements. The initial contract DOE awarded, however, called
for designing and building a plant that would not be able to complete
the cleanup by 2028, the time frame DOE agreed to with Washington
State. Similarly, the project management initiative calls for a
project's cost and schedule to be validated before setting a firm
project price. At the time of contract award, however, DOE's cost and
schedule estimates had not been fully validated to determine if they
were realistic. Since 2002, DOE has implemented various steps called
for in the project management initiative, such as developing a more
realistic baseline and increasing project contingency.
DOE's decision not to implement the project management initiative at
the start of the construction project has added to the risk and
uncertainty the department faces in completing both the construction
and operations projects. The initiative's main purpose is to minimize
problems that have plagued DOE in the past by taking such steps as
avoiding or mitigating high-risk strategies for constructing
facilities, as well as by conducting rigorous analyses to support key
decisions. In awarding the 2000 contract without these steps being
fully implemented, DOE has adopted a high-risk strategy at Hanford.
According to Hanford project officials, implementing project management
steps subsequently, as DOE has begun to do under its accelerated
approach, is intended to provide a more disciplined method for keeping
the project's cost and schedule on track. In our view, however, these
steps cannot eliminate the risk and uncertainty resulting from the
department's decision not to implement the project management
initiative from the start. This risk and uncertainty comes from three
main sources:
* Using a fast-track management approach. DOE has committed to a "fast-
track" process in which many design, technology development, and
construction activities are performed simultaneously, thereby
significantly increasing the risk of cost increases and schedule delays
as the construction project progresses. Performance so far on the
construction project has been mixed--problems have already contributed
to the $1.4 billion construction cost increase. Furthermore, our review
indicates that cost, schedule, and performance problems continue,
although they have not yet affected the revised project baseline. For
example, construction activities, such as building interior walls, have
outpaced design, leading to delays in finishing the walls and the need
to temporarily reassign construction workers to other tasks. In
addition, efforts to resolve key technical challenges, including
incorporating alternative treatment technologies, continue to fall
behind and threaten to affect the overall project's baseline. Hanford's
construction project manager acknowledged that the contract schedule
for building and testing the plant and concurrently resolving technical
issues was and still is high risk. Although he and other DOE officials
stated they have taken adequate steps to mitigate this risk, DOE, since
contract award, has continued to encounter significant technical and
other problems. Given the risk inherent in this project, we and outside
experts believe that further cost increases, as well as schedule
delays, are likely.
* Not fully evaluating cost-saving possibilities beyond the
construction phase. DOE started and is moving forward on the waste
treatment project without fully completing or conducting some of the
rigorous analyses needed to determine the most desirable approach for
separating waste components before further treatment. For example, as
specified in its construction contract, DOE plans to use a material
called "resin" to separate high-level components from the waste. The
resin DOE selected in 2000 is available only from a single supplier,
and DOE officials have been slow to study alternative resins that could
reduce operating costs of the separation facility. Instead, DOE has
continued to depend on the production capability and pricing
constraints of the single supplier, even though other--potentially less
expensive--alternative resins exist. Finally, in late February 2004,
DOE decided to more fully assess the cost and risks of relying on a
single supplier for the resin. But because of the time required to test
and certify an alternative resin, the new material may not be available
in time for commissioning and beginning operation of the separation
facility. As a result, DOE's project manager estimated that this lost
opportunity could increase project operation costs by at least $50
million a year. DOE's slowness in pursuing an alternative resin stemmed
from its focus on achieving the near-term goal of having an operating
plant by 2011 and its belief that pursuing the alternative, cost-saving
option could jeopardize achieving that goal.
* Inadequate planning to assess and mitigate the effects of a legal
challenge to DOE's overall approach to treating and disposing of high-
level radioactive waste. DOE's strategy for treating the waste--not
only at Hanford, but also at its other high-level waste sites at
Savannah River and the Idaho National Laboratory--is predicated on a
key legal assumption that has been successfully challenged in court.
The treatment strategy rests heavily on DOE's ability to determine that
a majority of its tank waste can be classified as other than high-level
waste and treated with less expensive technologies. DOE recently lost a
court decision on this matter and is appealing the ruling. DOE has also
pursued, unsuccessfully as of May 2004, a legislative remedy that has
instead raised concerns about whether the department is attempting to
avoid treating some of its waste in an appropriate manner. If DOE has
to change its current approach to treating and disposing of its waste,
the change would have a major impact on cleanup of Hanford's tank
wastes as well as those at DOE's other high-level waste sites. DOE has
developed only rough estimates of potential cost and schedule impacts
that this legal challenge poses, including near-term delays and overall
effects on cleanup. These estimates for the Hanford Site range from
about $350 million for delays if the lawsuit is resolved in DOE's
favor, to possibly more than $19 billion in delays and changes to the
program if the decision against DOE is upheld. The Hanford estimate is
part of a complexwide estimate of more than $100 billion if the lawsuit
is not resolved in DOE's favor. Our review indicates that these
estimates may be significantly understated. During our review, DOE
officials said they believe that their cost estimates and risk-
mitigation plans are adequate, and that no further analysis is needed
because DOE will ultimately succeed in the appeal or its legislative
efforts. In our view, however, a more thorough analysis and full
disclosure are needed concerning the potential risk this legal issue
poses to the waste treatment project at Hanford and DOE's other sites,
including potential impacts on the project's cost and schedule and the
environmental risks associated with further delays. We believe full
disclosure is important so that policy makers and others can undertake
a more informed debate about DOE's high-level waste program.
We are recommending that DOE (1) more closely follow its project
management order and implementing guidance when developing and carrying
out complex nuclear waste cleanup projects at Hanford and other DOE
sites and (2) develop and disclose to Congress a full and complete
estimate of the costs and time frames required to dispose of Hanford's
and the rest of DOE's high-level tank wastes if, to comply with the
law, DOE must dispose of a majority of its tank wastes in a high-level
waste repository.
DOE agreed to follow more closely its project management order and
guidance and to develop more complete information on the costs if DOE
is required to dispose of a majority of its tank wastes in a high-level
waste repository. However, DOE said it was unwilling to develop an
alternative treatment and disposal plan until the outcome of the legal
appeal has been determined. We believe that to be meaningful, any cost
and schedule estimates DOE develops should be based on a specific
alternative treatment plan.
Background:
DOE's Hanford Site in southeastern Washington State was established in
1943 to produce nuclear materials for the nation's defense. This
production mission entailed dissolving used ("spent") nuclear fuel to
remove plutonium, uranium, and other materials and generated large
volumes of high-level radioactive wastes. The wastes' radioactive
components decay in a process in which atoms of a radioactive element
(also known as a "radionuclide") spontaneously release dangerous
radiation. Even short periods of exposure to intense radiation can
cause health problems, including radiation sickness, burns, and even
death. Because of the intense radiation emitted from high-level waste,
the waste must be isolated and handled remotely behind heavy shielding.
Some of the radioactive components can be very mobile in the
environment and, if not checked, may migrate quickly to contaminate
soils and groundwater. In addition to radioactive components, DOE's
high-level waste generally also contains hazardous components--
including solvents, caustic soda, and heavy metals such as chromium.
Radioactive waste components combined with hazardous components are
referred to as "mixed wastes."
Although DOE stopped producing nuclear material at Hanford in 1989,
high-level waste tanks on the site now contain more than 55 million
gallons of sludge, liquid, and a sandlike material called "saltcake."
This Hanford tank waste represents about 35 percent of the
radioactivity and almost 60 percent of the high-level waste inventory
(by volume) within DOE. Hanford's 177 underground waste tanks were
constructed between 1943 and 1986. The oldest 149 tanks have single-
layer walls, or shells, and DOE has reported that 67 of these tanks are
assumed to have leaked waste into the soil. All of the single-shell
tanks are beyond their design life. The 28 newest tanks have double-
shells and are still in use, and DOE reports that these tanks have not
leaked. Since 1989, DOE has spent about $7 billion to manage the waste
and explore possible ways to treat and dispose of the wastes. As of May
2004, none of the high-level waste at Hanford has been treated for
final disposal.
Treatment and disposal of high-level waste produced at DOE facilities,
including Hanford, are governed by a number of federal laws that define
the role of DOE and the Nuclear Regulatory Commission (NRC) in waste
management. The Atomic Energy Act of 1954 (AEA) and the Energy
Reorganization Act of 1974 established responsibility for the
regulatory control of radioactive materials, including DOE's high-level
wastes.[Footnote 4] The Energy Reorganization Act of 1974 assigned NRC
the function of licensing facilities that are authorized for long-term
storage of high-level radioactive waste generated by DOE and
others.[Footnote 5] The Nuclear Waste Policy Act of 1982, as amended,
defines high-level radioactive waste as "highly radioactive material
resulting from the reprocessing of spent nuclear fuel, including liquid
waste produced directly in reprocessing, and any solid material derived
from such liquid waste that contains fission products in sufficient
concentrations, and—other highly radioactive material that the
[NRC]—determines—requires permanent isolation."[Footnote 6] The act
also established a process for developing and siting a geologic
repository (a permanent site deep underground) for the disposal of
high-level waste and spent fuel.
DOE's past efforts to treat and dispose of Hanford's tank wastes have
been costly but have resulted in little progress. DOE's initial cleanup
strategy, developed in 1989, was to immobilize the wastes stored in the
28 most modern tanks because the department knew the most about the
waste constituents in those tanks. DOE planned to defer until at least
2003 in deciding what to do with the waste in the remaining 149 tanks.
The department spent about $23 million on renovating a World War II-era
facility, in which it planned to conduct initial waste processing,
before determining that the facility could not be upgraded to meet
environmental standards. DOE abandoned this project in 1991. DOE
continued designing a waste treatment facility, known as the Hanford
Waste Vitrification Plant,[Footnote 7] that, beginning in late 1991,
was expected to process the waste from all 177 tanks. The resulting
design, however, was too small to treat all of the waste in a time
frame acceptable to regulators. In addition, under this scenario, DOE
would have completed the treatment facility before other aspects of the
waste treatment program were fully developed--such as retrieving the
wastes from the tanks. DOE abandoned this plan in 1993, after spending
$418 million. DOE's next cleanup attempt, begun in 1995, involved
shifting more of the project and performance risk from DOE itself to
its contractor through an approach called "privatization." Under a
fixed-price contract using this approach, the contractor would design,
finance, build, commission, and operate waste treatment facilities on
the Hanford Site for DOE. The department would pay the contractor for
successfully processed waste placed in canisters. The first phase of
this project was to involve treating about 10 percent of the waste, at
a contract price of $3.2 billion. Between 1996 and 2000, however, the
proposed contract price soared to more than $14 billion. In June 2000,
DOE canceled the contract, after spending about $300 million, mostly on
plant design. In December 2000, DOE awarded a new $4.3 billion "cost-
reimbursable" contract with performance fee to complete the waste
treatment plant that the previous contractor had begun to
design.[Footnote 8] In August 2002, DOE revised the project to more
effectively meet regulatory milestones. DOE renegotiated the contract
in April 2003 to reflect this revision and to address construction
problems. In this report, we refer to DOE's December 2000 plan as the
"previous approach" and the August 2002 strategy as the "accelerated
approach." (Table 1 summarizes key project events discussed in this
report.)
Table 1: Key Events in the Hanford Waste Treatment Project:
Date: December 2000;
Activity: Award of plant construction contract to Bechtel National
(previous approach).
Date: July and September 2002;
Activity: Independent reviews of the construction contract cost and
schedule.
Date: April 2003;
Activity: Bechtel National contract modification approved (accelerated
approach).
Date: May 2005;
Activity: Alternative treatment demonstration to begin.
Date: July 2011;
Activity: Bechtel National contract planned completion date.
Date: February 2018;
Activity: Regulatory milestone to complete treatment of 10 percent of
the waste by volume (25 percent of the radioactivity).
Date: December 2028;
Activity: Regulatory milestone to complete treatment of Hanford's tank
waste.
Date: 2046;
Activity: Previous DOE baseline date for completing treatment of
Hanford's tank waste.
Source: Compiled by GAO from DOE data.
[End of table]
Problems at Hanford and other DOE sites have led DOE to institute
reforms in contract and project management. DOE relies almost entirely
on contractors to carry out its production, research, and cleanup
missions. The department's history of inadequate management and
oversight and of failure to hold its contractors accountable for
results led us in the early 1990s to designate DOE contract and project
management as a high-risk area vulnerable to fraud, waste, abuse, and
mismanagement. In response to these and other criticisms, DOE took
steps to reform its contracting and project management practices. On
the contracting side, in February 1994, DOE issued a report--Making
Contracting Work Better and Cost Less--containing 48 recommendations in
three key areas: selecting alternatives to traditional contracting
arrangements used for management and operation of its sites, increasing
competition to improve performance, and developing and using
performance-based contracting tools. On the project management side,
after a series of critical reviews by the National Academy of Sciences
and others, DOE issued order 413.3 in October 2000, which defined
requirements for DOE project management. These requirements include
following a formal planning and decision process; developing key
management tools, including an acquisition strategy;[Footnote 9] and
implementing effective management practices, such as minimizing
project risk by developing mitigation strategies. DOE has implemented
order 413.3 through detailed guidance it adopted in March 2003.
[Footnote 10]
DOE carries out its tank waste cleanup program under the leadership of
DOE's Assistant Secretary for Environmental Management and in
consultation with a variety of regional and local stakeholders. In
addition to the Environmental Protection Agency (EPA) and state
environmental agencies, which have regulatory authority in the states
where the sites are located, stakeholders include county and local
governmental agencies, citizen groups, advisory groups, and Native
American tribes. These stakeholders make known their views through
various public involvement processes, including site-specific advisory
boards. Over the years, much of the cleanup activity has been
implemented under compliance agreements between DOE and regulatory
agencies. These compliance agreements provide for establishing legally
enforceable schedule milestones governing the work to be done. The
operation of Hanford's tank waste program is regulated under the
Hanford Federal Facility Agreement and Consent Order between DOE and
Washington State's Department of Ecology and EPA. This agreement,
commonly called the "Tri-Party Agreement," was signed in May
1989.[Footnote 11] At Hanford, DOE manages the project through its
Office of River Protection, which is a congressionally established
organization created in December 1998 to manage tank waste issues. The
office has a staff of about 110 DOE employees and a fiscal year 2004
budget of about $1.1 billion. It manages Hanford's tank waste cleanup
through two main contracts: a construction contract with Bechtel
National for a tank waste treatment plant and a tank farm operations
contract with CH2M Hill Hanford Group (CHG). Through its contract, CHG
manages various activities in support of the waste treatment project,
including planning for the overall project, developing alternative
treatment technologies, storing the tank waste until treatments are
available, and preparing to retrieve the waste from the tanks for
treatment.
DOE Has Revised Its Cleanup Approach to Reduce Costs and Save Time in
the Long Term but Has Increased the Cost of Its Major Construction
Project in the Short Term:
By accelerating and otherwise adjusting its previous approach to the
tank waste project--which was unlikely to meet required deadlines--DOE
estimates that it can shorten the project's overall time frame by
almost 20 years and lower the cost from more than $50 billion to less
than $30 billion. To achieve these goals, DOE has expanded the capacity
of the reconfigured treatment facilities and made other changes to the
construction phase of the project. These changes, plus contractor
performance problems, have increased the $4.3 billion construction
contract signed in 2000 by 33 percent, or $1.4 billion, bringing the
total contract price for the construction project to $5.7 billion. DOE
still expects to begin operating the waste treatment plant by 2011.
DOE's Previous Cleanup Approach Unlikely to Meet the Required
Deadlines:
DOE's December 2000 previous approach to the tank waste project did not
define project activities beyond 2018. The department's plan consisted
of (1) a first phase during which facilities would be constructed and
about 10 percent of the waste would be processed by 2018 and (2) a
second phase during which treatment capacity would be added and the
remaining waste would be treated. The plan involved constructing three
main treatment facilities--a waste separation facility, a high-level
waste vitrification facility, and a low-activity waste vitrification
facility--as well as various support facilities. Once the plant was
commissioned, DOE intended to separate 10 percent of the waste by
volume (and about 25 percent of the total radioactivity) into high-
level and low-activity portions of the waste[Footnote 12] and then
vitrify the separated wastes in two treatment facilities, one for high-
level waste and the other for low-activity waste. DOE plans to
eventually dispose of the high-level waste in a geologic repository.
Although DOE had planned to stabilize the low-activity waste through
vitrification as well, it plans to dispose of this waste at a facility
to be constructed on the Hanford Site. To accomplish treating 10
percent of the waste by 2018, DOE designed treatment facilities with
the capacity of 1.5 metric tons per day of high-level waste glass and
30 metric tons per day of low-activity waste glass. Although DOE
reported that this treatment capacity was sufficient for the project's
first phase, it was not sufficient for treating the remaining 90
percent of the waste. Therefore, near the end of the first phase of the
operations project in 2018, DOE intended either to expand the existing
treatment facilities' capacity or to adopt another approach. DOE had
agreed with its regulators--the state of Washington and EPA--to more
fully define the project's second phase by 2005.[Footnote 13]
Under the previous approach, for the second phase of the operations
project, DOE planned to expand the capacity of the treatment facilities
in 2018 to 6 metric tons per day of high-level waste glass and 60
metric tons per day of low-activity waste glass and to extend project
activities until 2046--18 years beyond the date agreed upon with
regulators. This decision came from a DOE assessment of the
requirements for the project's second phase, which led the department
to conclude that it could not finish waste treatment by 2028. To meet
its regulatory commitment to complete treating all of the waste by
2028, DOE recognized that it would need considerable capacity beyond
what could be added to the first-phase treatment facilities. However,
DOE also determined that it was not feasible to obtain the several
billions of additional dollars needed to construct waste treatment
facilities beyond what was already under construction. DOE officials
concluded at the time that the proposed expansion was the best the
department could do, and that it would need to renegotiate the current
2028 regulatory deadline for completing waste treatment with EPA and
the Washington State Department of Ecology.
Accelerated Approach Defined a Complete Project That Would Meet
Regulatory Deadlines and Reduce Costs:
In August 2002, DOE defined an accelerated approach to address the
processing of Hanford's tank wastes. According to the department, this
new approach would reduce environmental risk more quickly, save
billions of dollars over the previous approach, and allow DOE to meet
its regulatory commitment to complete waste processing by 2028. This
accelerated approach grew out of a DOE-wide effort to reexamine cleanup
and to find ways to accelerate risk reduction and reduce overall
cleanup costs. In addition, DOE officials saw the accelerated
initiative as a possible vehicle for completing tank waste treatment by
2028 instead of 2046.
DOE's accelerated approach at Hanford differs substantially from the
department's previous approach and has three main elements:
* Increasing the capacity of treatment facilities now under
construction. Under the accelerated approach, the waste treatment plant
was modified to increase waste treatment capacity. Instead of one
"melter" able to produce 1.5 metric tons of waste glass per day in the
high-level waste vitrification facility and three melters able to
produce a total of 30 metric tons of waste glass per day in the low-
activity waste vitrification facility, DOE decided to incorporate two
higher capacity melters for treating high-level waste and two higher
capacity melters for treating low-activity waste. DOE expects the
expanded facilities to have the capacity for 6 metric tons of high-
level waste glass and 36 metric tons of low-activity waste glass per
day. Figure 1 shows the plant under construction.
Figure 1: Aerial View of the Waste Treatment Plant, March 2004:
[See PDF for image]
[End of figure]
* Finding an alternative treatment approach for about 60 percent of the
low-activity waste. Under the accelerated approach, DOE has researched
a number of alternative ways to treat a large portion of the low-
activity waste at facilities other than the low-activity waste plant
now under construction. The main alternative DOE is currently
investigating involves vitrifying about 60 percent of the low-activity
waste directly in the disposal container--a process called "bulk
vitrification." In 2004, DOE plans to begin constructing a pilot
facility to further develop and demonstrate the bulk vitrification
process. If the 2-year test is successful, DOE plans to construct a
bulk vitrification facility near the other waste treatment facilities
now under construction. In addition, DOE continues to support
development of another potential treatment technology for this waste, a
thermal treatment process called "steam reforming."
* Disposing of waste whose characteristics are consistent with
transuranic waste without vitrifying it.[Footnote 14] As another
alternative for treating part of the waste, DOE has identified 2 to 3
million gallons of tank waste that it manages as high-level waste but
believes the waste does not require treatment and disposal as high-
level waste. DOE has reported that its analysis of tank records shows
that waste in those tanks does not come from reprocessing of spent fuel
and, therefore, does not meet the legal definition of high-level waste.
DOE plans to manage this waste as transuranic waste and, after drying
and packaging the waste, ship it to the Waste Isolation Pilot Plant in
New Mexico for disposal. DOE estimates that this approach, if approved
by regulators, could shorten the operating project time frame by at
least 3 years.
DOE expects that its accelerated approach will enable it to avoid
building another large waste treatment plant and still meet the
regulatory deadline of completing waste processing by 2028.[Footnote
15] DOE also expects that accelerating treatment to a completion date
of 2028 will reduce overall project costs from about $56 billion to
about $27 billion. The difference between the two DOE estimates is $29
billion, but DOE has stated publicly that it expects to achieve savings
of $20 billion by accelerating the project. However, we believe that
DOE's cost-savings estimate is significantly overstated. (See app. II
for a discussion of our concerns about DOE's cost-savings estimate.)
Table 2 summarizes the overall differences between DOE's previous
approach and its accelerated approach.
Table 2: Comparison between DOE's Previous Approach (December 2000) and
Accelerated Approach (August 2002) for Processing Hanford's Tank Waste:
Element of approach: Daily treatment capacity of treatment facilities:
High-level waste glass;
Previous approach: Capacity from 2011 to 2018: 1.5 metric tons/day;
Previous approach: Capacity after 2018: 6 metric tons/day;
Accelerated approach: 6 metric tons/day;
Element of approach: Daily treatment capacity of treatment facilities:
Low-activity waste glass;
Previous approach: Capacity from 2011 to 2018: 30 metric tons/day;
Previous approach: Capacity after 2018: 60 metric tons/day;
Accelerated approach: 36 metric tons/day.
Element of approach: Role of alternative treatment approaches, such as
bulk vitrification;
Previous approach: Capacity from 2011 to 2018: None;
Previous approach: Capacity after 2018: None;
Accelerated approach: Treat 60 percent of low-activity waste.
Element of approach: Overall treatment completed;
Previous approach: Capacity from 2011 to 2018: N/A;
Previous approach: Capacity after 2018: 2046;
Accelerated approach: 2028.
Element of approach: Life-cycle cost (2003 to completion in nominal
dollars);
Previous approach: Capacity from 2011 to 2018: N/A;
Previous approach: Capacity after 2018: $56 billion[A];
Accelerated approach: $27 billion[A].
Source: Compiled by GAO from DOE data.
[A] The difference between the two DOE estimates is $29 billion, but
DOE has stated publicly that it expects to achieve a savings of $20
billion by accelerating the project. Neither savings figure represents
savings DOE can expect to realize, however, because its cost estimates
have not been properly developed. To address these problems, we used a
present-value analysis, in which dollars are discounted to a common
year to reflect the time value of money. See appendix II for a
comparison of DOE's estimated savings with our calculation.
[End of table]
Accelerated Approach and Other Project and Contractor Performance
Issues Have Lengthened the Design and Construction Phases and Increased
Contract Price by $1.4 Billion:
DOE renegotiated its contract with Bechtel National to address several
factors, including accelerating the overall project to adjust for the
project's changed scope, revising the project schedule to increase
construction time, resolving contractor claims, and overcoming
contractor performance problems that had occurred to that point. The
project's changed scope required design rework and other equipment and
facility changes to add capacity in the treatment facilities and to
separate a planned analytical laboratory from the waste separation
facility. For example, in the high-level waste treatment facility, the
contractor had to increase individual floor heights, resulting in the
building height increasing 7 feet, to ease the complexity of
construction and for added operational flexibility. DOE has estimated
that these changes in scope will cost about $250 million.
DOE and Bechtel National have also agreed that about $325 million in
increased cost stems from Bechtel's engineering and project management
problems as well as from delays in completing design work. DOE and
Bechtel National have not agreed on the cause of the remaining $850
million in cost increases, which resulted from estimation errors and
omissions and from various design and construction issues. However, DOE
and Bechtel National resolved the disputed $850 million by changing the
contract and modifying the performance incentives to hold the
contractor more responsible for future cost increases. As a result of
the contract renegotiation, the contract price has risen by $1.4
billion (33 percent), to $5.7 billion. In addition, the dates for
certain interim steps of the construction project have been modified,
although the completion date for the contract remains the same so that
DOE can maintain its schedule to begin operations of the waste
treatment plant by 2011 (see fig. 2):
Figure 2: Key Construction Project Dates: DOE's Previous Approach
Compared with Its Accelerated Approach:
[See PDF for image]
[A] Cold commissioning refers to testing facilities using simulated
tank waste.
[B] Hot commissioning refers to testing facilities using actual tank
waste.
[End of figure]
Contract Performance Reforms Were in Place at Start of Project, Project
Management Reforms Were Added Later:
When the contract was originally awarded in 2000, DOE implemented key
elements of its contract performance initiative but chose not to
implement its project management reforms. At the time, DOE had just
adopted the project management reforms resulting from its project
management initiative, but implementing guidance was not in place. As
the waste treatment project got under way and performance problems
began to surface, DOE began to put in place many of the project
management initiative's key elements.
Key Contract Performance Reforms Were in Place When Contract Was
Awarded:
At the time of the December 2000 contract award, DOE was implementing
key elements of its contract performance initiative throughout the DOE
complex to help improve contractor performance and achieve project cost
and schedule goals. These elements included ensuring that the type of
contract was appropriate for a project's characteristics and risk
level, competing contracts to ensure that the government receives the
best offer, and using performance-based incentives to reward
contractors for good performance and penalize them for poor
performance. DOE has worked toward implementing this contract
initiative, which includes these key elements, since 1994.[Footnote 16]
The December 2000 Hanford waste treatment project construction contract
incorporated key provisions of DOE's contract performance initiative.
For example:
* In accordance with a key element of its 1994 contract performance
initiative to select a project-appropriate contract type, DOE decided
on a cost-reimbursement contract type for the waste treatment plant.
Following our criticisms of DOE's earlier privatization
approach,[Footnote 17] DOE decided that a cost-reimbursement contract
with incentive fees would be more appropriate than a fixed-price
contract using a privatization approach for the Hanford project and
would better motivate the contractor to control costs through incentive
fees.
* DOE decided that a competitive procurement was appropriate for the
Hanford project. After holding a series of meetings with interested
vendors to discuss contract options and how to promote competition, DOE
established an open competition for which two competing teams--Bechtel
National and Fluor Vitrification Group--offered proposals. DOE selected
the Bechtel National team, concluding that it offered the best
technical approach and project management, the highest qualifications
of key personnel, and the best record of past performance.
* Finally, DOE put in place a performance-based approach to hold the
winning contractor accountable for meeting cost and schedule targets.
For example, DOE provided Bechtel National with an opportunity to earn
up to $276 million in cost incentives if it met a target cost of $3.97
billion. In addition, the contract provided Bechtel National with $20
million more if it met the schedule date of February 2007 for specified
testing of the facility. Nevertheless, although the contractor could
earn the fee for meeting these goals, the contract also included a
provision that retaining all fees above the minimum guaranteed fee was
conditional upon the successful completion of plant testing once
construction was complete. If the contractor did not successfully test
the plant at the end of construction, it would have to repay all of the
incentive fees above the minimum. A DOE official involved with the
project at the time said this provisional fee concept was intended to
follow the contract reform initiative in holding the contractor
accountable for the quality of work performed.
After the contract was awarded, however, costs began to increase and
delays to occur. In response, DOE further adjusted the contract's
incentive structure to encourage the contractor to perform better. For
example, the initial contract fee structure stipulated that the
contractor would receive a minimum fee of $79 million regardless of
performance and set a maximum total fee of $595 million. In a 2003
contract modification, DOE eliminated the minimum guaranteed fee and
required the contractor to meet a performance standard to earn any
fees. The revised contract sets a maximum fee of $425 million, as
follows: $200 million for meeting a target cost, $60 million for
meeting four construction completion milestones, $54 million for
meeting other schedule requirements, and $111 million for meeting
performance-testing criteria demonstrating the facility's ability to
treat the waste. DOE made this change following a 2002 review that
concluded that the original incentives were not functioning
effectively, because the cost had risen to a point where the contractor
was no longer incentivized to contain costs. In internal contracting
documents, DOE noted that the current incentive structure is better
balanced and should increase the contractor's motivation to control
costs and, at the same time, improve on-time performance and operations
quality.
Project Management Reforms Were Not in Place at Contract Award:
Unlike the contract performance initiative, which has existed since
1994, DOE's project management initiative had just been issued at the
time of the 2000 contract award. Its provisions were in the early
stages of implementation throughout DOE, and no formal implementation
guidance had been issued.[Footnote 18] Based on good project management
practices, this project management initiative establishes a more
rigorous decision-making process containing specific requirements to be
completed at each project decision point. These requirements include
preparing an overall project strategy, performing up-front planning,
and having a thorough design and review of these plans by headquarters.
The initiative also requires conducting risk evaluations of the
projects; comparing budgeted with actual expenditures; and completing
certain requirements, such as a significant portion of design, before
proceeding with construction.
Because DOE had not issued formal guidance under its project management
initiative, reforms that the department did not implement in the
December 2000 contract included the following:
* The project management initiative requires that a project acquisition
strategy be developed during the early planning stages of a project. At
the time of contract award for the construction project, however, DOE
did not have an approved acquisition strategy describing how it planned
to meet long-term goals for treating all of Hanford's tank waste by
regulatory deadlines. Without such a plan, DOE could not demonstrate
whether the plant being built under the construction contract would
meet the long-term goals.
* DOE's project management initiative stresses that projects must
undergo thorough up-front planning. This process includes waiting until
a design is at a certain level of completion before setting a firm
project price. For simple, less-complex projects, the project
management initiative recommends that a design be up to 35 percent
complete before setting the project price. Although the initiative does
not give a definitive completion design level for more complex
projects, according to the Deputy Director for Project Management in
DOE's Office of Engineering and Construction Management, the aggregate
design of a complex project should adhere to a similar standard, so
that a sufficient level of design is completed in order to make a
reasonably accurate cost estimate. Waiting until a design is more
complete, especially on projects like the Hanford waste treatment plant
that are complex, one-of-a-kind nuclear facilities, allows DOE to
identify many of the design uncertainties and to estimate costs more
accurately. Contrary to guidance adopted in March 2003, however, DOE
set its December 2000 contract price when the design was less than 15
percent complete.
* The project management initiative recommends that a project's
baseline be reviewed and validated throughout the life of the project.
According to independent reviews performed in 2002, DOE awarded the
Hanford construction contract with a project cost baseline--$3.97
billion--that had not been appropriately validated.[Footnote 19]
Instead, the contract included a requirement that the contractor review
the previous contractor's design and cost--or perform a "due diligence"
review--after signing the contract to assess needed changes to ensure
that the facility would meet requirements. The independent reviewers
concluded that this due diligence requirement had left it ambiguous
regarding whether changes in the project's scope proposed by the
contractor would be allowed as contract cost increases. As a result,
the project was more vulnerable to increasing costs.
* DOE's project management initiative recommends that cost and schedule
baselines be fully achievable and that, to ensure a "high" confidence
of success, they build in appropriate contingency funding in case of
unforeseen events--that is, additional funding and schedule flexibility
based on a project's degree of risk. In the December 2000 contract,
however, DOE accepted a project cost and schedule baseline that had
only a 50 percent chance of succeeding on time and within budget,
according to an internal DOE assessment of the construction contract. A
subsequent independent review of the project found that both the
project cost and the contingency allowance were too low for a project
of this complexity, and the reviewers recommended raising the estimated
project cost and the contingency allowance to provide the project with
an 80 percent chance of success.
DOE proceeded with the December 2000 contract award without putting
these key project management requirements in place for two main
reasons. First, according to the former Deputy Manager of the Hanford
waste treatment project, the department believed that it had already
met the intent of its project management initiative--for example,
defining the "mission need," or what the project was intended to
accomplish, and specifying certain design and engineering requirements
in the early planning and design stages under the previous contractor.
DOE also had a system in place to monitor financial information and
report on the project's financial status, as required under the project
management initiative. Furthermore, the December 2000 contract included
requirements for the contractor to develop project management documents
either identical or similar to those under the project management
initiative. For example, the contract required the contractor to
develop a project execution plan, summarizing critical information
necessary to manage a project. The contract also required a quarterly
risk assessment report, which met certain project management
requirements for effective risk management. At the time, the then
Assistant Secretary of Environmental Management said that, with these
steps, the project had met the "equivalent" of many project management
requirements and could move forward, despite not having officially
followed the requirements for the earlier planning stages. Second,
these decisions were made while the department was undergoing
regulatory pressure to keep the cleanup moving forward. For example,
after canceling the earlier (privatization) contract in June 2000, DOE
committed to awarding a new construction contract by January 2001, and
the state of Washington was threatening to take legal action if DOE
missed that deadline. DOE had agreed to begin construction by July
2001, and it wanted to demonstrate that it could meet this regulatory
milestone.
Since 2002, DOE Has Been Implementing Management Practices Aimed at
Strengthening Management of the Construction Contract:
Two independent reviews in the midst of performance problems after the
2000 contract award identified significant project management
deficiencies and recommended fuller implementation of project
management reforms. These reviews found that many of the required
project-planning documents were either in draft form or inadequately
prepared. For example, the reviewers found that DOE's draft project
execution plan was outdated and incomplete. In addition, the reviewers
noted that the December 2000 contract cost estimate was understated,
and, therefore, the actual cost of the project had not been
communicated to DOE headquarters or to Congress. Furthermore, the
reviewers observed that the aggressive schedule in the baseline was
unrealistic. Maintaining such a schedule would compound the risk of
further unanticipated cost increases. The reviewers recommended that
the baseline not be approved with its existing schedule, but rather
that the cost and schedule targets be increased to a more realistically
attainable goal. In addition to recommendations from these reviews to
more fully implement project management requirements, directions in
2002 from the Assistant Secretary for Environmental Management strongly
emphasized adhering to project management requirements on all DOE
projects.
Following the independent reviews' recommendations, DOE has been
implementing its project management initiative on Hanford's waste
treatment project, putting in place certain requirements lacking in the
December 2000 contract, including the following:
* Developing a project acquisition strategy. DOE is now developing a
plan (acquisition strategy) for how it will meet overall waste
treatment goals for the project. This strategy addresses how DOE can
process all of its waste by the 2028 regulatory milestone. As of May
2004, this acquisition strategy was under development.
* Setting a contract price after design is at a greater level of
completion. When DOE renegotiated the construction contract price of
nearly $6 billion in its April 2003 modification, plant design was
about 40 percent complete. A March 2003 internal DOE review of the
proposed change to the contract price, which is based on a greater
level of design completion, stated that the new price appears to be
more reasonable.
* Proceeding with a baseline that has been reviewed and approved. The
Hanford waste treatment project is now operating under a baseline that
has been validated and approved by DOE headquarters, and additional
management practices have been put into place by the current management
to take a more disciplined approach to keeping the project cost and
schedule on track. When it renegotiated the contract price in April
2003, DOE had established a "minimum essential" initiative in which it
identified areas of work, such as construction of a container storage
building, that it believed were not essential to successful project
operation, thus helping to reduce the project's overall cost. At the
contract renegotiation, DOE identified about $67 million in work that
was unnecessary to the project and could be eliminated.
* Increasing contingency funding for unforeseen cost increases. The
April 2003 revised project baseline included $550 million in
contingency funding to allow DOE an 80 percent chance of meeting the
contract cost and schedule. To better control the use of this funding,
DOE also implemented a joint DOE-contractor managed board to authorize
which unforeseen cost increases will be funded using contingency funds.
DOE established this board to more tightly ensure that unforeseen
project changes do not increase the current cost baseline. In addition
to this contingency, DOE also set aside another $100 million for
unforeseen technical and programmatic risks.
Even with these steps, further concerns about the project's baseline
cost and schedule exist. For example, out of concern about the
reliability of the project's renegotiated cost and schedule, the
conference report accompanying the Energy and Water Development
Appropriations Act for 2004 directed the U.S. Army Corps of Engineers
to conduct a detailed, independent review of the project's cost and
schedule baseline. The report is to be issued to the House and Senate
Committees on Appropriations and may be available to the public by
early summer 2004.
Not Implementing Key Project Management Reforms at Start of the
Construction Project Has Added to DOE's Challenges:
DOE's decision not to implement the project management initiative at
the beginning of the Hanford waste treatment construction project has
increased the risks and uncertainties the department will face in
completing both the construction project and the operations project to
clean up the Hanford Site. Three main consequences of DOE's failure to
implement project management reforms earlier are heightened risk from
using a fast-track approach for plant construction, missed potential
cost-saving opportunities, and lack of a sufficient risk management
strategy for DOE to address legal challenges to its waste treatment
strategy.
Fast-track Project Management Approach Increases the Risk of
Encountering Problems:
To minimize the time required to complete construction, DOE has
followed a fast-track approach to the construction project, carrying
out plant design, construction, and technology development activities
simultaneously. Under this approach, design and construction activities
take place in stages, with construction of some sections of a facility
under way before those sections are fully designed. DOE's project
management initiative, however, cautions that such a fast-track,
design-build approach should be used only in limited situations, such
as when work scope requirements are well defined, the project is not
complex, and technical risks are limited. When these conditions do not
exist, a fast-track approach is a risky management strategy. According
to DOE's project management guidance, a fast-track approach to large,
complex, one-of-a-kind projects is inherently high risk.
The construction project at Hanford departs from conditions appropriate
for fast-track management. For example, DOE has acknowledged that the
waste treatment plant is the largest, most complex environmental
cleanup project in the United States. The plant incorporates waste
treatment processes that have never previously been combined into
facilities the size and capacity of those envisioned at Hanford.
Furthermore, key uncertainties still exist regarding the condition of
the waste to be treated and the best technologies to use for certain
treatment processes.
Despite these risks, DOE has chosen this approach to keep the
construction project moving forward so that the plant can be completed
in time to meet regulatory milestones. DOE selected a contractor for
the December 2000 contract award that, it believed, had experience with
the fast-track approach and would be able to maintain the contract
schedule. DOE also took steps to manage the increased risk associated
with a fast-track approach, establishing contingency funding measures
in case of unforeseen occurrences and linking performance fees
specifically to cost and schedule goals.
Despite the risk-mitigation actions taken in 2003, the fast-track
approach may result in continuing problems on the construction project.
For example:
* Construction is outpacing design, resulting in delays in completing
planned work. Although DOE doubled the funding for engineering and
other professional services to help ensure that design work was
completed on schedule, construction has outpaced design. This lag has
delayed completion of interior walls in the treatment facilities and
led to the need to temporarily reassign construction workers to other
tasks. According to the DOE construction project manager, the project
baseline has not yet been affected, but if the problem persists, both
cost and schedule could be affected.
* Shortening the facility commissioning period may limit plant
reliability. In its April 2003 contract modification, DOE extended the
construction schedule by 16 months because of delays and design
changes. To complete the construction project by 2011 while increasing
the construction phase, DOE reduced by nearly the same period the
commissioning phase, when the facilities' complex treatment processes
will be tested and brought into sound working order. Because of this
shorter commissioning time, DOE reduced the testing to be conducted on
actual wastes. As a result, the contractor plans to test only two of
Hanford's four waste types during this period. According to experts we
contacted, including former DOE and contractor officials and industry
technology development managers who have been involved in plant start-
up operations, this commissioning approach could overlook significant
problems until after the plant becomes fully operational. These experts
have noted that corrective actions at that time could be more costly
and time-consuming than if the problems were found during the
commissioning phase. DOE Hanford managers have countered that although
the period for testing plant operations using actual wastes has been
reduced, the period for testing simulated waste has been expanded by
several months. While they expect operational challenges during the
commissioning period, DOE officials believe that their current
commissioning strategy will be sufficient to test the plant adequately.
* Resolving key technical challenges for processing the waste has
fallen behind. To keep the construction project on schedule, DOE has
acknowledged that it needs to expedite the resolution of key technical
challenges facing the project. One such challenge involves the
generation of hydrogen gas during waste separation activities. The
Defense Nuclear Facilities Safety Board stated in October 2002 and
again in September 2003 that problems with this flammable gas,
involving buildup of gas in excess of safety limits, could result in
significant safety and operational problems. Bechtel National has been
addressing this issue through design changes. However, even though it
has been more than 1 year since the Board first raised this issue, this
problem has yet to be fully resolved. An even more critical technical
challenge involves how the wastes are mixed during treatment processes.
To expedite resolution of this technical challenge, Bechtel National
initially decided to rely on computer modeling of special mixers,
called "pulse jet mixers." But because computer modeling did not
provide adequate assurance that the mixers would work, the contractor
decided in April 2003, just 9 months before the design configuration
for the mixers was to be completed, to conduct more stringent tests.
Efforts to resolve the uncertainties associated with the mixers have
delayed the testing schedule by more than 4 months, increased costs by
more than $15 million, and postponed the purchase of several thousand
feet of pipe for the treatment facilities. In March 2004, Bechtel
National reported that modifying the facility design to reflect
improvements to the mixers could require an additional $70 million and
take about 16 months to complete. In its March 2004 monthly contract
status report, Bechtel National stated that such delays have affected
the project's critical path and will increase costs.
* Depending on a technology not fully tested on Hanford tank wastes to
meet regulatory milestones. To meet its regulatory milestone for
completing treatment of Hanford's tank waste by 2028, DOE is attempting
to incorporate a technology before its effectiveness has been fully
demonstrated on Hanford's tank wastes. For example, DOE is relying
heavily on the assumption that a treatment technology called "bulk
vitrification" will succeed. Although this technology is being managed
outside of the scope of DOE's construction project, it is critical to
the cleanup program because the technology is expected to treat up to
60 percent of the Hanford's low-activity waste. DOE's current plans
depend on this technology to meet its 2028 cleanup date, even though
its effectiveness has not been fully tested. As a result, to
demonstrate that this technology will work on Hanford's tank wastes,
DOE has adopted an aggressive schedule to begin constructing a pilot
facility later in 2004 and to conduct formal testing over about 2
years, beginning in May 2005. Although initial tests with simulated
waste have led DOE to consider this technology promising, Hanford's
waste management director has stated that the size and treatment
capacity of a full-scale plant cannot be confirmed until testing is
completed. Because DOE is relying on bulk vitrification to process the
majority of low-activity waste, any problems in developing this
treatment capability will likely extend the duration of the waste
treatment project and increase its overall cost. DOE's initial schedule
may already be threatened because awarding a contract to build the test
facility is about 6 months behind schedule.
Beyond these potential problems with the construction project, the
fast-track approach raises other concerns. First, DOE's construction
project manager has acknowledged that the schedule for constructing and
testing facilities and concurrently resolving technical issues
continues to be high risk. In addition, Bechtel National reported in
January 2004 that it was concerned about being able to meet its planned
construction schedule. Second, engineering and construction experts we
contacted within the industry, national research organizations, and
academia expressed concern that proceeding with DOE's fast-track
approach could create higher costs, schedule delays, and facilities not
fully capable of treating the waste. Third, a 2002 study by the
National Research Council reported that DOE should proceed with caution
when managing "first-of-a-kind" projects using a fast-track
approach.[Footnote 20] The council concluded that developing technology
concurrently with project engineering, design, and construction
activities increases an already high degree of uncertainty. The council
said such projects are risky, costly, and likely to produce facilities
needing significant modifications to ensure that they will work
properly. Fourth, the Defense Nuclear Facilities Safety Board cautioned
in June 2002, and again in March 2004, that a fast-track approach could
lead to expensive plant modifications or to the acceptance of increased
public health and safety risks. Finally, DOE's record with the fast-
track approach on complex nuclear cleanup facilities is not good.
[Footnote 21] DOE could not identify for us a single instance where
this approach to constructing a large, complex nuclear cleanup facility
resulted in a project that was completed on time and within budget.
Delays in Evaluating Risks and Costs Associated with Waste Separations
May Cost $50 Million or More:
DOE has delayed evaluating the most desirable approach to take in
separating waste components before further waste treatment can occur.
Separating Hanford's waste into its various components is crucial to
DOE's treatment and disposal plans, and, as of April 2004, DOE was
relying on a single supplier of a costly key substance in the
separation process. Waste separation involves sequential filtering and
removing major high-level constituents, such as cesium-137 and
strontium-90, from the waste. The separation process at Hanford
includes a technology called "ion exchange," in which the waste flows
through columns containing a specially designed substance, or resin,
that chemically collects specific high-level waste components on its
surface as they pass through the columns. The high-level waste
components are then washed from the resin and accumulated as part of
the high-level waste stream. Bechtel National will obtain this resin
from a single, small supplier.
DOE faces two significant risks regarding resin supply: acquiring the
resin in sufficient quantities to operate the separation facility and
the cost of the resin DOE selected. The first risk is that DOE decided
to acquire the resin from a small supplier that may not have the long-
term production capacity to supply the resin in required quantities--
about 6,250 gallons per year. In a December 2003 letter to Bechtel
National, the manufacturer stated it can produce 1,600 gallons of resin
over a 12-month period to meet initial commissioning needs. Although
the manufacturer assured Bechtel National that it will eventually be
able to produce enough resin for full-scale treatment operations, as of
April 2004, contractor and DOE management officials had not verified
that the supplier actually has this capacity. These officials stated
that they are relying on the manufacturer's December 2003 assurance
that it can produce the quantity of resin needed for full-scale
operations. Bechtel National stated that it is not responsible for
ensuring that the supplier can provide resin beyond its plant
commissioning commitments. The second risk is the potentially high cost
of purchasing the resin from a single source without price competition.
Information obtained in December 2003 indicates that the resin may cost
about $10,000 per gallon. Over a single year of operating the
separation facility, resin costs alone could amount to about $62
million. According to the project's research and technology manager,
however, it may be possible to use an alternative, that may be an
equally effective but significantly less expensive resin, that may be
available from commercial suppliers. This alternative resin may cost
about $1,000 to $2,000 per gallon, or about $6 million to $12 million
per year. DOE and contractor officials, including the research and
technology manager and the project's manager, confirmed that pursuing
an alternative resin could substantially increase the reliability of
supply and reduce plant operating costs.
DOE has taken steps to address these project risks, but delays in
developing a viable risk-mitigation strategy may cost DOE $50 million a
year or more in lost savings opportunities. As early as its December
2000 contract award date, DOE recognized that depending on a single
resin source was high risk. Although Bechtel National began evaluating
alternative resins in 2002, DOE took no formal action on the issue
until 2003. After we and others raised this issue with DOE in early
2003, the department modified the contract in April 2003 to require the
contractor to continue research on alternative resins for use as an
option to the resin specified in the December contract. Initial testing
on alternative resins, completed by the contractor in late 2003, showed
promising results for a resin costing significantly less than the
original. Given the estimated cost of the two resins, the potential
cost savings of using the alternative resin for 1 year of operation
could result in a savings of between $50 million to $56 million,
according to the project manager. The contractor, however, did not
aggressively pursue development of an alternative resin, even though it
was authorized to do so, deciding to defer any significant exploration
of alternative resins until fiscal year 2007 or later. The contractor
explained that an alternative resin was not needed to achieve its
contractual commitment of delivering an operational facility. In
addition, the contractor was unsure whether it could successfully
develop another resin in time for plant commissioning and said that
spending money on an alternative resin could worsen projected 2005 and
2006 funding constraints.
In late February 2004, DOE directed Bechtel National to test and
qualify an alternative resin in time for commissioning the separation
facility. Although testing an alternative resin is important in
properly managing project risk, with the limited time to certify an
alternative resin, DOE could for several years after treatment
operations begin be exposed to the risk of having an uncertain supply
of resin available to support waste separation operations and of having
to pay a higher cost for the resin. The contractor will have about 2
years to fully test and qualify an alternative resin if the resin is to
be available for procurement by mid-2006 and for plant commissioning in
2008. Two years may be too little time because the qualifying process
took nearly 10 years for the original resin. Even if the contractor can
successfully qualify the resin within 2 years, it will still have to
obtain sufficient quantities for plant commissioning. The contractor's
research and technology manager told us that this schedule is extremely
tight and will be challenging to meet. Thus, DOE may for considerable
time be dependent on the production capability and pricing of a single
supplier for a substance critical to the waste separation process.
DOE Has Not Adequately Assessed or Mitigated a Legal Challenge to Its
High-level Waste Treatment Strategy:
A third challenge DOE must address to successfully manage its waste
treatment project is to fully assess the risks of a legal challenge to
its approach for treating and disposing of the tank wastes and to
develop an adequate mitigation strategy for addressing those risks.
DOE's project management initiative requires that the department assess
significant risks, quantify the potential impacts, and develop a
mitigation plan for addressing these risks. DOE, however, has not fully
assessed the risks associated with the legal challenge, has only very
rough estimates of the potential impacts on the waste treatment
project's cost and schedule, and has not developed a comprehensive
mitigation strategy.
Legal Challenge to DOE's High-level Waste Treatment and Disposal
Strategy Threatens to Derail Cleanup:
DOE had developed a process for determining the conditions under which
some of its tank wastes could be considered for disposal as other than
high-level waste. This process was defined in DOE order 435.1 and was
generally called a process for determining that certain waste resulting
from reprocessing is "waste incidental to reprocessing."[Footnote 22]
To meet criteria set forth in this order for considering tank wastes as
other than high-level wastes, DOE had to determine that the waste (1)
has been or will be processed to remove key radioactive components to
the maximum extent technically and economically practical; (2) will be
disposed of in conformance with the safety requirements for low-level
waste as established in NRC regulations; and (3) will be put in a solid
physical form and not exceed radioactivity levels set by NRC for the
most radioactive category of low-level waste, referred to as "Class C
standard."[Footnote 23] Once satisfied that these requirements were met
for a specific segment of the waste, DOE planned to obtain a technical
review of this determination from NRC. NRC's role was to determine
whether DOE had appropriately followed the criteria in order
435.1.[Footnote 24] After a favorable determination from NRC, DOE would
have considered the waste segment to be "incidental" waste for purposes
of treating and disposing of the waste.
The legal basis of DOE's plan to apply different treatment and disposal
approaches to segments of its tank wastes has been challenged in the
courts. In March 2002, a lawsuit filed by the Natural Resources Defense
Council and others challenged DOE's authority to proceed with its
planned approach. The plaintiffs argued that DOE's plan violated the
Nuclear Waste Policy Act by allowing high-level radioactive waste to be
classified and treated as something other than high-level waste. In a
brief in support of their position, plaintiffs expressed the concern
that DOE would use its incidental waste determination process to
permanently leave intensely radioactive waste in the tanks after only
minimal treatment. In a July 2, 2003, federal district court ruling,
the court agreed with the plaintiffs that the portion of DOE's order
435.1 setting out its incidental waste determination process violated
the Nuclear Waste Policy Act and found that that part of the order was
invalid. The court concluded that the act "allows DOE to treat the
solids to remove fission products, thereby permitting reclassification
of the waste," but does not permit the same option for the liquid
portion of the waste, which may not be reclassified and must be treated
as high-level waste.[Footnote 25] This ruling poses a significant
barrier to DOE's plan to segment the tank wastes for treatment and
disposal purposes, and it raises the possibility that DOE might need to
find an alternative strategy to its accelerated approach for cleaning
up Hanford's tank wastes. DOE has appealed this decision.
DOE's Risk Assessment and Mitigation Planning Are Inadequate:
DOE's project management initiative defines risk as "the measure of the
potential inability to achieve overall project objectives within
defined scope, cost, schedule and technical constraints" and emphasizes
that all projects should have a risk assessment and mitigation
strategy. Such an assessment must identify any technical, cost, or
schedule risks to the project; quantify potential cost and schedule
impacts; and develop and implement a strategy to mitigate or properly
manage those risks. According to the Deputy Director for Project
Management in DOE's Office of Engineering and Construction Management,
which oversees implementation of DOE's project management initiative,
managers should analyze both the consequence to the project if the risk
occurs and the likelihood of a risk's occurring. He noted that if the
potential impact to the project is significant and the likelihood of a
risk occurring is highly probable, DOE managers must develop a formal
risk-mitigation plan detailing the potential risks, impacts, and
actions taken and planned to best mitigate the risk. The project
management initiative describes effective risk management as "an
essential element of every project" and makes it clear that risk
management should occur continuously throughout a project.
DOE has not conducted a thorough risk assessment of the potential
effects of the legal challenge on the Hanford tank waste treatment
project. Although a draft internal study concludes that the legal
challenge presents a high risk to DOE's high-level waste
program,[Footnote 26] DOE has only very rough estimates of the
consequences for its cleanup program. These estimates, which are not
part of Hanford's formal risk management plan, cover both near-term
impacts on cost and schedule if the lawsuit delays cleanup but is
ultimately resolved in DOE's favor and long-term impacts if the outcome
continues to go against DOE. The department estimated that in the near
term, a 2-year slip in cleanup would cost an additional $350 million
at Hanford. We found no analysis supporting this estimate.[Footnote 27]
DOE officials said this $350 million near-term estimate was not tied to
specific activities on the waste treatment project but represented the
approximate cost of an extra year of maintaining waste in the tanks.
Regarding the long-term impacts if DOE must treat and dispose of all of
its tank wastes as high-level waste, DOE has provided rough,
unvalidated estimates for both the Hanford site ($19 billion) and its
entire high-level waste program (more than $100 billion). Again, we
found little rigorous analysis to support either estimate. For example,
the $19 billion Hanford estimate is based, in part, on a configuration
and capacity of the low-activity treatment facility that DOE is no
longer considering because that configuration could result in an
unacceptably high heat load. The Hanford estimate also includes a
potential cost of $6 billion to remove and dispose of 149 tanks after
waste has been retrieved. Information that DOE provided to us in April
2004, however, indicates this cost could be closer to $67 billion.
Further, the $19 billion Hanford estimate does not include the
additional costs to DOE for disposing of approximately 86,000 more
canisters of treated waste than currently planned in a deep geological
repository. On the basis of a recent disposal estimate of $650,000 per
canister, this cost alone could add $56 billion to the Hanford
estimate.[Footnote 28] The estimate for Hanford is part of DOE's
complexwide estimate of "more than $100 billion" cost impact if
outcomes continue to go against DOE. These revised Hanford estimates
and other recent information from DOE indicate that the department's
complexwide estimate of more than $100 billion may also be
significantly understated. For example, within its $100 billion
estimate, DOE included $30 billion for disposal of additional canisters
that would be produced complexwide. In response to our request,
however, DOE acknowledged the $30 billion was too low and recalculated
the figure, resulting in a revised estimate of more than $90 billion
for this component of its complexwide estimate.
A main aspect of DOE's risk-mitigation planning--its pursuit of a
legislative remedy--has also been inadequate.[Footnote 29] Regarding
the legislative remedy, DOE has not been effective in developing
complete and objective supporting information and effectively
communicating that information to decision makers or other
stakeholders. In addition to using only rough estimates, DOE has raised
stakeholder concerns about its true intentions. For example, after the
court ruling, DOE drafted proposed language to amend the Nuclear Waste
Policy Act of 1982, as amended, to give DOE specific authority to make
incidental waste determinations.[Footnote 30] The state of Washington
and others raised concerns that the proposed language would leave DOE
with too much discretion regarding how to make these determinations.
The state of Washington has been concerned that DOE may use such
authority to permanently and inappropriately leave highly radioactive
waste in the tanks. To date, DOE has not been effective in countering
these concerns or in explaining to its stakeholders or other decision
makers why the incidental waste determination process is in the
public's best interest.
The potential consequences for Hanford's tank waste project, and for
DOE's other high-level waste sites, could be far-reaching and
significant. DOE's own analysis suggests several consequences could
occur. In the worst case, wastes could remain on-site untreated for
longer periods of time, posing a continued threat to workers, the
public, and the environment. Complexwide, DOE would likely need to find
a different strategy to treat all of its tank waste for disposal at a
geologic repository. Treated waste, at much larger volumes than now
estimated, could overwhelm the currently planned geologic repository,
hastening the need for additional repository capacity. For example, DOE
estimates that it would need to send an additional 180,000 canisters of
waste from all sites to a repository if it must dispose of most of its
waste as high-level waste. DOE's current plans call for sending about
20,000 canisters to a repository. Furthermore, the plant now under
construction at Hanford may not be configured to most effectively treat
waste if all of the waste is destined for a repository. For example,
all of the tank wastes may need to be treated through the waste
treatment plant, making supplemental technology development
unnecessary. Since the current plant would be unable to process all of
the tank waste by 2028 without using supplemental technologies, DOE may
need to consider alternatives, such as building a second waste
treatment plant. DOE does not currently have estimates of these
scenarios.
Despite these deficiencies in risk assessment and mitigation planning,
DOE believes its current risk assessment and mitigation plan are
sufficient. According to DOE, its cost estimates were intended only to
illustrate potential impacts to its high-level waste program in a
worst-case scenario, and, because the department believes it will
ultimately be successful either in the appeals process or through
legislative avenues, a more detailed risk assessment is not needed. In
our view, the uncertainties associated with this legal challenge to its
waste treatment program are precisely why DOE needs a thorough and
objective assessment of the risks and a mitigation plan that includes
complete and effective communication with decision makers and other
stakeholders.
Conclusions:
After years of effort and after spending hundreds of millions of
dollars and making several false starts, DOE is now constructing a
plant to use in treating and preparing for disposal of a major portion
of Hanford's high-level tank wastes. But DOE began plant construction
before it had a complete acquisition strategy in place, and it is
carrying out technology development, plant design, and construction
activities simultaneously. In going forward, DOE faces significant
challenges that will likely continue to affect cost and completion
dates, including the challenge of continuing to manage concurrent
development, design, and construction. DOE will need to minimize the
cost and schedule growth that will likely continue and to take full
advantage of cost-reduction opportunities over the life of the project.
DOE must also carefully assess and manage the implications of legal
challenges to its overall approach to treating and disposing of high-
level tank wastes. We believe that full disclosure of the potential
impacts to its high-level waste program is important so that policy
makers and others can undertake a more informed debate.
Recommendations for Executive Action:
We recommend that the Secretary of Energy take the following two
actions:
* follow more closely DOE's project management order and implementing
guidance when acquiring complex nuclear waste treatment plants at
Hanford and other DOE sites, especially by avoiding a fast-track,
concurrent approach to the design, technology development,
construction, and testing of such plants, and:
* develop and provide to Congress a plan that includes an estimate of
the costs and time frames needed to treat and dispose of Hanford's and
the rest of DOE's high-level tank wastes if the current court ruling is
upheld and if a majority of DOE's tank wastes must be disposed of in a
high-level waste repository.
Agency Comments and Our Evaluation:
We provided a draft of this report to DOE for review and comment. In
written comments, DOE's Assistant Secretary for Environmental
Management generally agreed with the report's recommendations. The
Assistant Secretary also provided technical comments as an enclosure to
the letter, which we have incorporated as appropriate. DOE's written
comments on our draft report are included in appendix III.
Regarding the report's two recommendations, DOE agreed to follow more
closely its project management guidance when acquiring complex nuclear
waste treatment plants, especially by avoiding a fast-track, concurrent
approach to designing and constructing such plants. Concerning our
recommendation to develop and provide to Congress a plan that includes
an estimate of the costs and time frames to treat and dispose of DOE's
high-level wastes, if a majority of the wastes must be disposed of in a
high-level waste repository, DOE agreed that it should develop more
complete information on the costs to give Congress a better sense of
the magnitude of those costs. However, DOE said it was unwilling to
develop an alternative treatment and disposal plan until the outcome of
the legal appeal has been determined. In our view, to be meaningful,
any cost and schedule estimates that DOE develops should be based on a
specific alternative treatment plan.
In an enclosure to the letter, DOE disagreed with our view that it
should use present values when disclosing the cost savings between
alternative approaches. DOE said that present-value techniques tend to
hide the full value of future costs due to discounting, and that using
current dollars provides for a more direct comparison with a project's
life-cycle cost and DOE's budget. However, although using current
dollar estimates may be appropriate for budget purposes, as we discuss
in our report, standard economic analysis as well as Office of
Management and Budget guidelines (see app. II), state that present-
value analysis is the standard methodology to use for comparing costs
of different alternatives that occur at different times (e.g., DOE's
accelerated and baseline approaches). Present-value analysis reflects
the time value of money--that cost savings are worth more if they are
incurred sooner and worth less if they occur in the future. Contrary to
DOE's comment that present-value techniques "hide" the full value of
future costs, present-value analysis reveals the true costs of projects
and is the appropriate method to use to reliably estimate and compare
costs.
DOE also disagreed with our statement that its $20 billion cost-savings
estimate for the Hanford waste treatment project is overstated and
misleading. We believe DOE's $20 billion cost-saving estimate is
overstated because it is not based on a present-value analysis as
discussed above, and the estimate is misleading because it is a point
estimate that does not consider uncertainties inherent in the waste
treatment project and implies a degree of accuracy that is not
warranted. Furthermore, as we noted in the report, DOE's $20 billion
cost-saving estimate could not be derived from DOE's reported costs for
its baseline and accelerated approaches. (See app. II.)
As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report until
30 days after the date of this report. At that time, we will send
copies to other interested congressional committees and to the
Secretary of Energy. We will also make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions on this report, please call me
on (202) 512-3841. Other staff contributing to this report are listed
in appendix IV.
Signed by:
Robin M. Nazzaro:
Director, Natural Resources and Environment:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
To develop information on the Department of Energy's (DOE) cleanup
strategy for Hanford tank waste and how the strategy has evolved since
December 2000, we analyzed information and documents provided by DOE
officials and contractors at the Hanford Site and DOE headquarters. We
also toured the project's construction site. To assess the construction
contract, including its cost and schedule, we reviewed the contract;
contract modifications; and related documents, including the
contractor's monthly progress reports and independent and headquarters
reviews, and analyzed various related studies. We also discussed the
progress of the project with Washington State regulators and
Environmental Protection Agency officials; DOE headquarters officials,
including the Assistant Secretary for Environmental Management; and
Bechtel National, Inc., (Bechtel National) officials. To assist in
evaluating the technical aspects of DOE's approaches, we obtained
assistance from our technical consultant, Dr. George Hinman, who has a
Doctor of Science degree in physics and is Professor Emeritus at
Washington State University. Dr. Hinman has extensive nuclear energy
experience in industry, government, and academia. To develop
information on the impact of DOE's initiative to accelerate cleanup of
the waste, we reviewed DOE reports and studies and discussed them with
key headquarters and field staff. We also reviewed various studies on
the proposed supplemental technologies and other methods being
considered by DOE and discussed them with program officials at the
Hanford Site and DOE headquarters. We also discussed these issues with
Washington State regulators. We relied on dollar figures as provided by
DOE but took various steps--such as reviewing cost validation reports,
analyzing budget formulation documents, documenting cost estimating
assumptions, and obtaining clarifications from DOE budget officials--to
ensure that these data were sufficiently reliable for purposes of this
report. To estimate the potential savings from accelerating the
project, we analyzed DOE's life-cycle cost estimates using a
commercially available risk analysis program called "Crystal Ball" (see
app. II). We did not assess DOE's efforts to address any waste
remaining in the tanks after retrieval is completed or DOE's plans to
close the tanks. Both of these topics were outside the scope of our
review.
To examine the extent to which DOE's contract performance initiative
and project management initiative have been implemented on the Hanford
project, we reviewed DOE's contract reform report--Making Contracting
Work Better and Cost Less--and DOE order 413.3 and its implementing
guidance. We interviewed DOE headquarters officials from the Office of
Engineering and Construction Management and the Office of Procurement
Assistance. We reviewed the original and modified contract, related
project management documentation, and various reviews of the project.
We gathered documentation on contract reforms and project management
reforms at Hanford and also interviewed DOE officials at Hanford. We
discussed contract management and project management issues with
outside experts, including staff from the National Academy of Sciences,
the U.S. Army Corps of Engineers, experts who took part in the 2002
reviews of the waste treatment contract, and staff from the Department
of the Navy's Nuclear Naval Program.
To determine the impact of DOE's fast-track, design-build plant
construction approach on contract success, we reviewed various DOE and
contractor studies and interviewed knowledgeable officials. In
addition, we discussed this approach with several independent experts,
including a former senior manager of DOE's environmental management
program, an Exxon operations manager involved in facility start-up
operations, and our technical consultant, to obtain their views on any
benefits or potential risks DOE is facing. To determine the potential
cost and schedule impact associated with the resin needed for DOE's
waste separation plant, we reviewed DOE and contractor studies, risk
assessments, and cost and schedule evaluations. We discussed the
implications of these studies with the officials involved; our
consultant, Dr. Hinman; and DOE and contractor officials.
To address the legal challenge DOE faces, we obtained DOE's summary
estimates of life-cycle cost and schedule impacts to its high-level
waste program at its three high-level waste sites if DOE lost the
current court challenge. We also obtained summary information relating
to DOE's estimate of near-term cost increases to its overall high-level
waste program if a 2-year delay in the program occurred. DOE provided a
summary table that showed, by site, such information--including
additional years of treatment processing needed if litigation outcome
was unfavorable, additional number of high-level waste canisters that
would need to be produced, and additional storage costs. For the
Hanford Site, we also requested, and DOE provided, more detailed
analysis supporting its summary near term and longer term estimates.
The information DOE provided included a summary cost comparison of four
different waste treatment scenarios, including the current approach DOE
is following. We also obtained from DOE basic assumptions used in
calculating these scenarios and qualifications to these data. We
discussed the Hanford estimates with DOE officials. In addition, we
obtained from key DOE officials responses to a series of questions
focusing on the reliability of the Hanford estimates. These questions
covered issues such as the methodology used to develop the estimates,
internal review of the estimates, and confidence level associated with
the estimates. Also, because these same estimates--for DOE's entire
high-level waste program, not just Hanford--were reported in note 17 in
DOE's Fiscal Year 2003 Performance and Accountability Report (financial
statements), we interviewed the auditors who performed the review of
the financial statements for DOE. We obtained the auditors' supporting
documentation and discussed with them the reliability of these
estimates. Given our review of the documentation provided by DOE and
our discussions with DOE officials, we have reservations about the
reliability of these data. These issues are discussed in this report.
For determining DOE's risk-mitigation efforts, we gathered
documentation relevant to DOE's legislative proposal. We discussed
DOE's risk-mitigation strategy with officials from the state of
Washington. We also asked DOE to provide its assessment of its risk-
mitigation efforts for the Hanford waste treatment project as a result
of the lawsuit concerning its waste treatment and disposal strategy. We
did not evaluate DOE's litigation strategy.
We conducted our review from July 2003 through May 2004 in accordance
with generally accepted government auditing standards.
[End of section]
Appendix II: Analysis of DOE's Cost-Saving Estimates:
DOE has estimated that by accelerating cleanup of the high-level tank
wastes at its Hanford Site, it can realize savings of as much as $20
billion by shortening the time frame for completing the project by
almost 20 years and better aligning waste treatment and disposal
approaches with the wastes' characteristics. Our review of DOE's
savings estimate suggests that the estimate is overstated and
misleading. The savings estimate is overstated because DOE did not
consider the time value of money or properly adjust its estimates for
inflation. The savings estimate is misleading because DOE used point
estimates of costs that do not consider uncertainties inherent in this
type of analysis, such as projecting costs for new or untested
technologies or treatment options.
* DOE's savings estimate is overstated because it did not consider the
time value of money or properly adjust for inflation. According to
standard economic analysis and guidance developed by the Office of
Management and Budget (OMB),[Footnote 31] cost-comparison analyses
should be based on life-cycle costs of competing alternatives with
future costs discounted to present values, that is, adjusted both for
inflation and the time value of money. According to this guidance, DOE
should have first converted the annual expected costs of cleanup for
both its baseline estimate and its accelerated approach estimate to
their present value in 2003 and then compared the two present-value
costs. In contrast, DOE's comparison of its baseline estimate with its
accelerated estimate is based on values that are simply the sum of
current dollar values of future costs. As a result, DOE's methodology
does not reflect an accurate comparison of its baseline estimate with
the accelerated approach estimate.
* DOE's cost-saving estimate is misleading because it did not consider
uncertainties inherent in DOE's waste cleanup program. According to OMB
guidance, agencies should attempt to characterize the nature and source
of uncertainty associated with their data and report data uncertainties
or the full range of values within which their estimates can fall.
Uncertainties inherent in DOE's tank waste program include the future
costs of new technologies and waste treatment options that are not
fully tested and the overall duration of waste treatment activities.
For example, DOE expects to reduce treatment costs significantly based
on a technology called "bulk vitrification." The life-cycle cost
estimate developed for this technology, however, is preconceptual and
will likely increase as this technology is developed, according to the
bulk vitrification project manager. DOE has not developed an estimate
of the range of possible costs for this technology and has not
reflected this uncertainty in its cost-savings estimate.
To correct for DOE's methodological errors and illustrate their
potentially significant effect, we obtained DOE's available annual cost
and budget estimates for the project, but we considered the effects of
the time value of money and inflation. In addition, although we were
not able to adjust DOE's cost-savings estimate to demonstrate the
effects of all uncertainties, for illustrative purposes we included the
uncertainty associated with changes in interest rates. Rather than
using one interest rate in the savings estimate, as DOE did, we
included in our analysis a range of interest rates, which resulted in a
range of possible project costs.[Footnote 32]
Table 3 summarizes the differences in the cost-savings estimate between
DOE's approach and our present-value analysis that reflects the
uncertainty associated with future interest rates. Our analysis shows
that the estimated savings from DOE's accelerated approach could range
from $10 billion to $13 billion, with a mean value of $12 billion. In
other words, the estimated cost savings DOE can expect from
implementing its accelerated cleanup approach is about $12 billion, or
about half of the projected savings the department has reported.
Table 3: GAO Analysis of DOE's Cost-Savings Estimate for the Hanford
Tank Waste Treatment Project:
Dollars in billions.
Description of estimates: DOE's life-cycle cost estimates for fiscal
year 2001 baseline and 2003 accelerated approach (current dollars);
Baseline estimate: $56[A];
Accelerated estimate: $27[B];
Estimated savings: $20[C].
Description of estimates: GAO's present-value analysis results for the
DOE baseline and accelerated estimate (constant 2003 dollars);
Baseline estimate: $26[D];
Accelerated estimate: $14[D];
Estimated savings: $12[D].
Description of estimates: Range of present-value analysis results
(constant 2003 dollars);
Baseline estimate: $23-$29[E];
Accelerated estimate: $13-$15[E];
Estimated savings: $10-$13[E].
Source: GAO analysis of DOE data.
[A] According to the project's budget team leader, this figure is the
approved 2001 baseline (including adjustments).
[B] This figure is Hanford's approved 2003 accelerated estimate.
[C] The actual difference is $29 billion. Since implementation of its
accelerated initiative, DOE has stated publicly that it expects to
achieve savings of $20 billion.
[D] These figures represent the means of our present-value analysis.
[E] Values represent the maximum and minimum of the range of estimated
values from the present-value analysis when uncertainties are
incorporated.
[End of table]
[End of section]
Appendix III: Comments from the Department of Energy:
Department of Energy:
Washington, DC 20585:
May 25, 2004:
Ms. Robin M. Nazzaro:
Director, Natural Resources and Environment:
U.S. General Accounting Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Ms. Nazzaro:
We have reviewed your draft report entitled Absence of Key Management
Reforms on Hanford 's Cleanup Project Adds to Challenges of Achieving
Cost and Schedule Goals (GAO-04-611). I appreciate the opportunity to
comment on this report and our specific comments are enclosed.
Your report contains two recommendations for executive action. The
first recommendation, which I accept, concerns the Department of
Energy's (DOE) project management initiative when acquiring complex
waste treatment plants. Specifically, you recommend avoiding approaches
where design, construction, and technology development are performed
concurrently. DOE Order 413.3, Program and Project Management for the
Acquisition of Capital Assets, which the Office of Environmental
Management (EM) program now follows, addresses the concerns you raised
in your report.
The second recommendation involves providing a plan to Congress
detailing cost and schedule impacts to the EM program if most of the
tank waste must be disposed in the repository. A recent court ruling
raises legal uncertainty that the DOE can manage some of its spent
nuclear fuel reprocessing (i.e., tank) wastes, as non-high-level waste.
You state that the DOE has not performed a formal risk assessment and
does not have an integrated strategy to deal with this possibility.
While we have not performed a formal risk assessment, the DOE does have
an integrated strategy involving legal and legislative actions.
The DOE has appealed this ruling and, as the U.S. General Accounting
Office (GAO) recommended, has been in dialogue with both state
governments in which DOE's tank wastes are located, and applicable
congressional delegations to develop language that provides for
appropriate authorities for making determinations of how the waste
should be disposed, that preserve DOE's Atomic Energy Act authorities
and the states' environmental regulatory authorities. The results of
these initiatives are likely to define the legal landscape that in turn
will shape DOE's options for disposal of this waste. Since such a
revision would require significant time, effort, and considerably
increased costs, we believe it prudent to wait until we know the
outcome of these initiatives. Thus, while DOE agrees with GAO that it
should continue to develop more complete information about the
potential costs that disposal of most or all of the tank waste and the
tanks themselves at a repository would entail, we believe that the
purpose should be to give Congress a better sense of the magnitude of
what would be involved, and not necessarily to provide a complete
revised strategy, which DOE believes should at least await completion
of the appellate process.
If you have any further questions, please call me at (202) 586-7709 or
Mr. Eugene C. Schmitt, Deputy Assistant Secretary for Environmental
Cleanup and Acceleration, at (202) 586-0755.
Sincerely,
Signed by:
Jessie Hill Roberson:
Assistant Secretary for Environmental Management:
Enclosure:
[End of section]
Appendix IV: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Robin M. Nazzaro (202) 512-3841 William R. Swick (206) 287-4800:
Staff Acknowledgments:
In addition to those individuals named above, Chris Abraham, Ellen Chu,
Bob Crystal, Doreen Eng, Doreen Feldman, George Hinman, Nancy Kintner-
Meyer, Mehrzad Nadji, Tom Perry, Emily Pickrell, and Stan Stenersen
made key contributions to this report.
(360372):
FOOTNOTES
[1] This project is officially known as the River Protection Project.
The Columbia River flows through the site, and the cleanup is designed
in part to keep contamination from reaching the river. In this report,
we refer to the project as the "waste treatment project."
[2] For this report, we use the term "high-level waste" to refer to the
waste that DOE is managing as high-level waste. DOE's Hanford Site is
one of three DOE sites with high-level wastes needing treatment; the
other two are the Savannah River Site in South Carolina and the Idaho
National Laboratory.
[3] The waste treatment plant consists of one facility to separate the
waste, two facilities to treat separated portions of the waste, and one
laboratory and other supporting facilities.
[4] The AEA authorized the Atomic Energy Commission (AEC) to provide
for the safe storage of radioactive waste from defense-related
activities. 42 U.S.C. § 2121(a)(3). Later, the Energy Reorganization
Act of 1974 abolished the AEC, transferring responsibilities to the
Energy Research and Development Administration (ERDA)--DOE's
predecessor--and NRC. 42 U.S.C. §§ 5814, 5841. In 1977, ERDA was
abolished, and its functions were transferred to the newly established
DOE, explicitly leaving the management of the government's radioactive
waste in the hands of DOE. 42 U.S.C. §§ 7151(a), 7133(a)(8).
[5] 42 U.S.C. § 5842.
[6] 42 U.S.C. § 10101(12).
[7] Vitrification is a thermal process of mixing the waste with glass-
forming materials and melting it into glass. The glass is then poured
into canisters for long-term storage or disposal.
[8] Cost-reimbursement contracts provide for payment of allowable
incurred costs as prescribed in the contract. These contracts establish
an estimate of total cost and set a ceiling that the contractor may not
exceed, except at its own risk, without the approval of the contracting
officer.
[9] An acquisition strategy establishes a framework within which
detailed project planning and execution are accomplished. An
acquisition strategy defines an acceptable approach to meeting mission
requirements and the relationships between essential project elements,
such as project management, worker safety, and contract administration.
[10] In this report, we refer to DOE's order 413.3 and implementing
guidance as its "project management initiative."
[11] The purpose of the Tri-Party Agreement is to ensure that
environmental impacts associated with past activities are addressed and
that environmental laws are complied with. The agreement covers many
other site activities in addition to the tank wastes. It also outlines
a process for modifying the agreement if needed.
[12] There is no statutory or regulatory definition of low-activity
waste. At Hanford, DOE defines it as solidified waste that qualifies as
mixed low-level waste because it is treated to remove radionuclides to
below 10 C.F.R. Part 61 Class C concentrations and has been shown to
meet performance objectives equivalent to those in 10 C.F.R. Part 61
Subpart C. In this report, we refer to this portion of the waste as
"low-activity waste."
[13] In the Tri-Party Agreement, DOE has agreed to retrieve and treat
at least 99 percent of the waste altogether. If the department
succeeds, about 500,000 gallons of waste, known as the "tank heel,"
will remain when the tanks are closed. Tank heel waste and DOE's method
of tank closure are outside the scope of our review.
[14] Transuranic waste is defined as waste containing radionuclides
with atomic numbers higher than 92 (the atomic number of uranium) and
half-lives longer than 20 years in concentrations exceeding 100
nanocuries per gram. 42 U.S.C. § 2014(e)(e), 40 C.F.R. § 191.02(i).
[15] The Tri-Party Agreement requires DOE to report by January 2005 on
the status of its revised approach and submit by January 2006 an
updated plan for completing waste processing.
[16] In 1996, we reported on DOE's implementation of the contract
performance initiative and noted that although the department had begun
to apply the initiative's principles in newly negotiated contracts,
full implementation of the initiative's requirements could take years.
See U.S. General Accounting Office, Department of Energy: Contract
Reform Is Progressing, but Full Implementation Will Take Years, GAO/
RCED-97-18 (Washington, D.C.: Dec. 10, 1996). Again in 2002, we
reported that although DOE had made progress in implementing key
requirements on its projects, it needed to take additional actions to
ensure that its projects were achieving the improved results this
initiative was intended to achieve. See U.S. General Accounting Office,
Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure
Initiatives Have Improved Results, GAO-02-798 (Washington, D.C.: Sept.
13, 2002). Further, a 1999 review by the National Research Council
noted that DOE has taken steps to reform its contracting practices but
cautioned that major challenges remained, such as to consistently
negotiate contracts that are favorable to the government. See National
Research Council, Improving Project Management in the Department of
Energy (Washington, D.C.: June 1999).
[17] See U.S. General Accounting Office, Nuclear Waste: Observations on
DOE's Privatization Initiative for Complex Cleanup Projects, GAO/T-
RCED-00-215 (Washington, D.C.: June 22, 2000).
[18] DOE order 413.3--formally adopted in October 2000--identified the
basic requirements that DOE officials were to follow in managing their
projects. Guidance outlining how the initiative's requirements should
be implemented was not adopted until March 2003.
[19] See U.S. Department of Energy, External Independent Review,
Independent Cost Review: CD-3C Review of the Waste Treatment and
Immobilization Plant Project (Washington, D.C.: September 2002), and
Report of the Independent Team for the Hanford Waste Treatment Plant
Project Review (Washington, D.C.: July 1, 2002).
[20] See National Research Council, Progress in Improving Project
Management at the Department of Energy, 2002 Assessment (Washington,
D.C.: National Academies Press, 2003).
[21] We have reported on the cost and schedule problems associated with
DOE's use of a fast-track, design-build approach in our reviews of
other DOE projects. For example, see U.S. General Accounting Office,
Nuclear Waste: Hanford Tank Waste Program Needs Cost, Schedule, and
Management Changes, GAO/RCED-93-99 (Washington, D.C.: Mar. 8, 1993);
Nuclear Waste: Department of Energy's Project to Clean Up Pit 9 at
Idaho Falls Is Experiencing Problems, GAO/RCED-97-180 (Washington,
D.C.: July 28, 1997); Nuclear Waste: Process to Remove Radioactive
Waste from Savannah River Tanks Fails to Work, GAO/RCED-99-69
(Washington, D.C.: Apr. 30, 1999); and Nuclear Waste: Management
Problems at the Department of Energy's Hanford Spent Fuel Storage
Project, GAO/T-RCED-98-119 (Washington, D.C.: May 12, 1998).
[22] The phrase "waste incidental to reprocessing" refers to wastes
resulting from reprocessing spent nuclear fuel that DOE considers not
to be high-level waste.
[23] As specified in NRC regulations (10 C.F.R. § 61.55(a)(2)(iii)),
Class C low-level waste must meet the most rigorous requirements for
low-level waste form to ensure stability and requires additional
measures at the disposal site to protect against inadvertent intrusion.
[24] Although order 435.1 does not require DOE to obtain NRC's
concurrence with its incidental waste determinations, DOE did so to
obtain an independent assessment of its evaluation of waste as
incidental to reprocessing.
[25] Natural Resources Defense Council v. Abraham, 271 F.Supp.2d 1260
(D. Idaho 2003).
[26] See Department of Energy, High-Level Waste--Risk Reduction Project
(HLW-RPP): Managing Waste to Reduce Risk--HLW (Washington, D.C.: May
20, 2003).
[27] During DOE's fiscal year 2003 financial statement audit, DOE
provided its independent auditors with the $350 million estimate for
Hanford, based on a delay in selecting a supplemental technology for
treating low-activity waste. According to the contractor's project
manager, however, as of April 2004, DOE was moving forward with trying
to award a contract to test and develop bulk vitrification, the
technology DOE has tentatively selected to treat a majority of
Hanford's low-activity waste.
[28] DOE originally estimated $30 billion to dispose of approximately
180,000 additional canisters at a geological repository. DOE did not
define how much of the $30 billion applied to each site, but recently
the department recalculated those costs and acknowledged that this cost
could be $43 billion at Hanford alone (based on a per canister cost of
$500,000). We used the most recent per canister disposal cost of
$650,000 provided to us by the department in arriving at our estimate
of $56 billion.
[29] DOE's other main risk-mitigation approach involves appealing the
court ruling. After the July 2003 decision, DOE appealed to the Ninth
Circuit Court of Appeals. As of May 2004, no date had been set for oral
arguments in this case.
[30] Before the court ruling, we had recommended that DOE seek
clarification of its authority from Congress. See U.S. General
Accounting Office, Nuclear Waste: Challenges to Achieving Potential
Savings in DOE's High-Level Waste Cleanup Program, GAO-03-593
(Washington, D.C.: June 17, 2003).
[31] OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-
Cost Analysis of Federal Programs (Washington, D.C.: Oct. 29, 1992).
[32] We assumed that real (adjusted for inflation) annual interest
rates would range from a minimum of 2.92 percent to 5.39 percent with
the likeliest value of 3.84 percent. We used an Excel spreadsheet and a
commercially available risk analysis program, called "Crystal Ball," to
perform this analysis. This program randomly selects values for the
interest rate from the given range and uses each value in the
spreadsheet to calculate the savings.
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